Breaking: The IRS just issued a temporary relief notice that is good news for crypto holders interacting with CeFi exchanges in 2025!
TEMPORARY RELIEF UNDER SECTION 1.1012-1(j)(3)(ii 🧵
TEMPORARY RELIEF UNDER SECTION 1.1012-1(j)(3)(ii 🧵
1/ Quick background first:
The IRS finalized the Sec. 6045 custodial broker (CeFi broker) regulations several months ago.
Consequently, starting 1/1/2025, if your crypto assets are held with a CeFi broker and you do NOT choose a preferred accounting method (like HIFO or Spec ID), the broker will sell your assets under FIFO.
The IRS finalized the Sec. 6045 custodial broker (CeFi broker) regulations several months ago.
Consequently, starting 1/1/2025, if your crypto assets are held with a CeFi broker and you do NOT choose a preferred accounting method (like HIFO or Spec ID), the broker will sell your assets under FIFO.
2/ Now, there was a practical problem with this approach.
Almost all CeFi brokers were not ready to support Spec ID as of 1/1/25.
🚨This meant that you had no option other than selling your CeFi assets under FIFO starting 1/1/25.
In a bull market environment, this could have been disastrous for many taxpayers because you'd be unintentionally selling the earliest purchased asset (which tends to have the lowest cost basis) first, while unknowingly maximizing your capital gains.
Almost all CeFi brokers were not ready to support Spec ID as of 1/1/25.
🚨This meant that you had no option other than selling your CeFi assets under FIFO starting 1/1/25.
In a bull market environment, this could have been disastrous for many taxpayers because you'd be unintentionally selling the earliest purchased asset (which tends to have the lowest cost basis) first, while unknowingly maximizing your capital gains.
3/ IRS recognized this issue and issued temporary transition relief (Notice 2025-7), today. 👏
This means, If you sell assets inside a CeFi broker, you can still use your books & records/crypto tax software to document which specific unit you are selling.
You won't have to be locked into FIFO as before.
This means, If you sell assets inside a CeFi broker, you can still use your books & records/crypto tax software to document which specific unit you are selling.
You won't have to be locked into FIFO as before.
4/ This temporary relief only applies to sales occurring inside CeFi exchanges between 1/1/25 and 12/31/25.
After 12/31/25, you must pick an accounting method for CeFi assets with the broker. By this time, I believe many brokers will support all accounting methods.
So, make sure to pick your accounting method at your CeFi exchange on 1/1/26. If you don't pick one, you will most likely default to FIFO.
Make sure the CeFi broker accounting method matches your crypto tax software tool so your tax lots are in sync.
After 12/31/25, you must pick an accounting method for CeFi assets with the broker. By this time, I believe many brokers will support all accounting methods.
So, make sure to pick your accounting method at your CeFi exchange on 1/1/26. If you don't pick one, you will most likely default to FIFO.
Make sure the CeFi broker accounting method matches your crypto tax software tool so your tax lots are in sync.
5/ Just to be clear, you don't have to take any action like filing something with the IRS today to get this relief.
It's automatically applied to you.
In short, make sure to use reputed crypto tax software or reliable books & records if you want to sell CeFi assets under HIFO, LIFO, or any form of Spec ID during 2025.
If you don't keep detailed records, you will be selling your assets under FIFO, which may not be ideal.
Nothing new here.
See Q40 & 41.
irs.gov/individuals/in…
It's automatically applied to you.
In short, make sure to use reputed crypto tax software or reliable books & records if you want to sell CeFi assets under HIFO, LIFO, or any form of Spec ID during 2025.
If you don't keep detailed records, you will be selling your assets under FIFO, which may not be ideal.
Nothing new here.
See Q40 & 41.
irs.gov/individuals/in…
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